Important Information on Cryptocurrency and Digital Asset Risk
INX Digital believes the future of finance is digital and we’re proud to work with experts, thought leaders, industry members, and regulators in the U.S. and abroad as we build our platform. This digital future is full of promise and opportunity, but it is not void of risks.
Remember, INX Digital does not provide investment, legal, or tax advice, and we provide this information for educational purposes only and all users of cryptocurrencies and digital assets are encouraged to conduct their own due diligence before opening an account and/or buying, selling, or trading cryptocurrencies and digital assets. You must evaluate your particular financial circumstances to determine whether or not trading cryptocurrencies is appropriate for you. You should not invest funds in cryptocurrencies that you cannot afford to lose. The trading of cryptocurrencies can result in substantial losses, including most if not all of your investment.
POTENTIAL USERS OF DIGITAL OR VIRTUAL CURRENCIES, INCLUDING BUT NOT LIMITED TO BITCOIN, SHOULD BE FOREWARNED OF A POSSIBLE FINANCIAL LOSS AT THE TIME THAT SUCH CURRENCIES ARE EXCHANGED FOR FIAT CURRENCY DUE TO AN UNFAVORABLE EXCHANGE RATE. A FAVORABLE EXCHANGE RATE AT THE TIME OF EXCHANGE CAN RESULT IN A TAX LIABILITY. PLEASE CONSULT YOUR TAX ADVISOR REGARDING ANY TAX CONSEQUENCES ASSOCIATED WITH YOUR HOLDING OR USE OF DIGITAL OR VIRTUAL CURRENCIES.
Accounts holding cryptocurrencies are not protected by SIPC coverage. Cryptocurrencies are also not covered by the FDIC, which covers fiat currency held in member banks. Existing insurance products are inadequate to cover potential losses if an exchange fails and/or digital wallets are hacked. Any insurance or surety bonds maintained by INX Digital for the benefit of its customers may not be sufficient to cover all losses incurred by customers.
Cryptocurrency and Digital Asset Features
Cryptocurrencies and other digital assets are a digital representation of value that function as a medium of exchange, a unit of account, or a store of value, but do not have legal tender status. Cryptocurrencies are sometimes exchanged for U.S. dollars or other fiat currencies around the world, but they are not generally backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies.
Cryptocurrencies and other digital assets are subject to changes or may otherwise cease to operate as expected due to changes made to its underlying technology, changes made using its underlying technology, or changes resulting from an attack. These changes can include, but are not limited to, forks, rollbacks, airdrops, or bootstraps and may cause changes that may prevent the access of your cryptocurrency. A cryptocurrency or digital asset that experiences a fork can have a negative impact on the value of a particular cryptocurrency and can result in the loss or cancellation of a cryptocurrency position or a sudden loss of value. The ability to participate in forks could also have implications for investors. For example, a market participant holding a cryptocurrency position through a cryptocurrency exchange may be adversely impacted if the exchange does not allow its customers to participate in a fork that creates a new product.
Market and Price Volatility
The volatility and unpredictability of the price of cryptocurrencies and other digital assets relative to fiat currencies may result in significant loss over a short period of time.
Cryptocurrencies have no intrinsic value and there is no investment underlying cryptocurrencies. The price of cryptocurrencies is based on the agreement of the parties to a transaction, which may or may not be based on the market value of the cryptocurrency at the time of the transaction.
Whether the future market price for a cryptocurrency or other digital asset will move up or down or even sustain a market value is a speculation and unknowable. Contingent orders, such as “stop-loss” or “stop-limit” orders, if permitted at all, may not necessarily limit losses to the expressed amount, and market conditions may make it impossible to execute an order or fulfill a transaction or to obtain the stop price. INX Digital makes no representations or warranties about whether a cryptocurrency or other digital asset will be listed on our platforms or that those listed will always continue to be listed. Further, it’s important to know that any cryptocurrency or digital asset currently available on our platform is subject to delisting without prior notice in the sole discretion of INX Digital.
Potential for Fraud and Cybersecurity Risks
Transactions in cryptocurrency may be irreversible, and, accordingly, losses due to fraudulent or accidental transactions may not be recoverable. The nature of cryptocurrency may lead to an increased risk of fraud or cyber attack. Cryptocurrency balances are generally maintained as an address on the blockchain and are accessed through private keys, which may be held by a market participant or a custodian. Although cryptocurrency transactions are typically publicly available on a blockchain or distributed ledger, the public address does not identify the controller, owner or holder of the private key. Unlike bank and brokerage accounts, cryptocurrency exchanges and custodians that hold cryptocurrencies do not always identify the owner. The opaque underlying spot market poses asset verification challenges for market participants, regulators and auditors and gives rise to an increased risk of manipulation and fraud, including the potential for Ponzi schemes, bucket shops and pump and dump schemes, which may undermine market confidence in a cryptocurrency and negatively impact its price.
Regulatory and Legal
Legislative and regulatory changes or actions at the state, federal, or international level may adversely affect the use, transfer, exchange, and value of cryptocurrency and other digital assets. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. There is no assurance that a person who accepts a cryptocurrency as payment today will continue to do so in the future, and there may be few, if any, options regarding legal recourse.
Transaction and Other Fees
Many cryptocurrencies allow market participants to offer miners (i.e., parties that process transactions and record them on a blockchain or distributed ledger) the ability to earn a fee. While not mandatory, a fee is generally necessary to ensure that a transaction is promptly recorded on a blockchain or distributed ledger. The amounts of these fees are subject to market forces, and it is possible that the fees could increase substantially during a period of increased activity or volatility.
In addition, cryptocurrency exchanges, wallet providers and other custodians – including INX Digital – may charge relatively high fees as compared to custodians in many other financial markets. You can learn more about our fees here
INX Digital works closely with federal, state, and international regulators in order to build our platform. For more information regarding cryptocurrencies, digital assets, and their associated risks, check out:
- Consumer Financial Protection Bureau (CFPB) Consumer Advisory
- Financial Industry Regulatory Authority (FINRA)’s Cryptocurrencies Hub
- Commodity Futures Trading Commission (CFTC) Virtual Currencies